Five Risky Investments You Should be Cautious Of

Sunday, May 4, 2014, 6:00 AM | Leave Comment

Investing is always a matter of balancing risk and reward; even relatively risk-free investments, like Treasury Bills have a very small risk of a negative return.

It’s almost impossible to make a reasonable rate of return off of a savings account. This is tempting more people to dip into riskier investments, doing anything they can to get a higher rate of return.

Five Risky Investments You Should be Cautious Of

Here are some of the ones to avoid.

  1. Penny Stocks

    A penny stock is a speculative bid on a small company, often mining or resource- extraction based, that’s undercapitalized. These stocks can often be had for less than a dollar, or even less than a dime…and they can appreciate very quickly.

    The problem with penny stocks is that they’re the traditional vehicle of the pump-and-dump strategy; they lure in novice investors, pump up the stock price and sell it. The business is usually a shell corporation and the people running the scam get the money.

  2. Collectibles

    A collectible is a piece of art, a vintage car, or some other item that has appeal to a certain type of buyer. Collectibles are an incredibly risky investment, and artificially created collectibles, like the comic book boom and bust of the 1990s, are even worse. Here’s a basic rule of thumb: Buy the art or car because you like the art or the car, not because you think it will appreciate in value.

  3. Precious Metals and Jewelry

    This flouts the conventional wisdom – precious metals are an inflation hedge, and a secure store of value. Precious metal prices are volatile, and rise when financial crises loom, then plummet when the stock market recovers. You won’t go broke with precious metals, but you’re not likely to make a significant return.

  4. Timeshares

    Timeshare investments are a great-sounding idea; they’re a horrible place to park your money if you’re hoping for a positive return. At best, you’re buying a way to take a large family vacation at a discount over hotel and resort rates, and it will pay for itself in reduced vacation costs in about five to six years…if you vacation to the same place every year.

  5. Futures and Options

    Futures contracts are agreements to purchase something in the future at a price defined now. In short, you’re betting that what you’re taking the option on will cost more in the future than it does now. These are, in the words of many financial planners, institutionalized gambling, not investing.

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